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Government of Canada Response to IDA letter - September 28, 2004

Thank you for your letter in which you raised the issues of International Development Association (IDA) governance, debt relief and the independent review of the World Bank's role in extractive industries. With respect to the latter issue, I understand that my officials have been corresponding with the Halifax Initiative on your concerns.

I appreciate your sharing with me your background paper on the case for a new International Development Association. I believe that we both share a strong desire to see IDA fulfill its mandate to reduce poverty in the world's poorest countries. Your paper suggests that we might look to the Global Environment Facility (GEF) as a possible model for a redesigned IDA. There are, however, fundamental differences between the mandates and the operations of these two facilities that make a direct comparison of their governing structures difficult. Compared to IDA, which commits roughly I; SS6-7 billion in financing annually, the GEF is a much smaller facility. Moreover, while IDA's remit cuts across a multitude of sectors, including public sector governance, the GEF's mandate is limited to a much narrower field of environmental issues.

On the critical issue of the governance of IDA, as you rightly noted, recipient country ownership and voice in the decision-making process are essential to development effectiveness. The international community is moving in this direction. As an integral part of the World Bank group of institutions, IDA's Board of Governors is very similar to that of the International Bank for Reconstruction and Development (IBRD). In addition, IDA shares the same Executive Board as the IBRD, where Part I (donor countries) and Part II (recipient countries) positions are evenly balanced. All IDA policies and operations are subject to Executive Board approval, which is usually made on the basis of consensus. Moreover, recent initiatives to strengthen the capacity of Part II representatives at the World Bank and at the International Monetary Fund, especially the addition of three professional staff positions to the Offices of the African Executive Directors, will serve to strengthen the voice of developing countries in the decision-making process.

Your point that borrowing countries have been under-represented in the IDA Deputies discussions is valid. While having no formal decision-making authority, the IDA Deputies process provides donors with considerable leverage in the design of IDA policies. The IDA Deputies have been highly influential in advancing the IDA and World Bank policy agenda. They were instrumental in the decision to increase the World Bank's focus on good governance as well as on stronger cooperation between borrowing country governments and civil society. Indeed, largely at the initiative of IDA Deputies, IDA was the first development cooperation agency to implement a system of performance-based lending, which provides incentives for client countries to strengthen anti-corruption measures as well as to cooperate more closely with civil society.

Canada strongly supported the invitation for borrower representatives to take part in the IDA13 replenishment discussions. Drawing on the lessons of IDA13 experience, much more can be done to make borrower participation in the IDA14 process stronger and more effective. In particular, we would want to see IDA provide more resources to allow the borrower representatives to consult more thoroughly with the governments that they represent. At the July 2004 IDA14 replenishment meeting in Hanoi, borrower representatives actively participated in the discussions. We believe that borrower representatives will exert a strong influence on the policy directions and funding recommendations coming out of the IDA14 Deputies.

I share your views on the need for greater international attention to the issue of debt relief for the poorest countries. As you are aware, HIPC debt relief and a more recent move to grant programming within IDA have been motivated in large part by the realization that many of the world's poorest countries are incapable of assuming more debt, even on IDA's highly concessional terms. The Development Committee, Bank and Fund staff and the G7 have been looking at options, including further debt relief and grant financing, to further ease their debt burdens and avoid future debt distress.

I intend to look closely at this issue in the context of my work on the Commission for Africa. If you have some innovative suggestions on how to address this challenge, I would greatly appreciate it it you would share them with my officials.

I hope that I have been able to address some of your concerns.

Yours sincerely,

Ralph Goodale
Minister of Finance
Ministre des Finances

c.c.: The Honourable Marcel Masse, Executive Director, World Bank Group